ERP and Change Management at Nestlé – case study analysis Readthe case study and answer the questions: A year after signing a$200 million contract with SAP and more than $80 million forconsulting services and maintenance, HSBC securities in London,downgraded their recommendation on Nestlé SA stock. Although theEnterprise Resource Planning (ERP) project will probably providelong-term benefits, the concern was what short-term effect theproject will have on the company. Nestlé Company’s goal is to builda business as the world’s leading nutrition, health, and wellnesscompany. The company was founded in 1867 when Henri Nestlédeveloped the first milk food for infants and saved the life of aneighbor’s child. Nestlé is headquartered in Vevey, Switzerlandwith offices worldwide. Aside from chocolate and confectionaries,the company is widely known by?its major brands, which?include? Inthe early 1990s, Nestlé was a decentralized company where each ofits brands, such as Carnation® and Friskies®, operatedindependently. The brands were unified and reorganized under NestléUSA, but the divisions still had geographically dispersedheadquarters and made their own business decisions autonomously.More- over, a team charged with examining the various systems andprocesses throughout the company found many problematicredundancies. For example, Nestlé USA brands were payingtwenty-nine different prices for vanilla to the same vendor. JeriDunn, vice president and CIO of Nestlé USA, said “Every plant wouldbuy vanilla from the vendor, and the vendor would just get whateverit thought it could get. And the reason we couldn’t check isbecause every division and every factory got to name vanillawhatever it wanted to. So you could call it 1234, and it might havea whole specification behind it, and I might call it 7778. We hadno way of comparing.” Dunn and her team recommended technologystandards and common systems for each brand to follow that wouldpro- vide for cost savings and group buying power. Dunn then wentto Switzerland to facilitate the implementation of a commonmethodology for Nestlé projects worldwide, but when she returnedstateside two years later as a CIO she found that only a few of herrecommendations were being followed. As Dunn recalls, “My teamcould name the standards, but the implementation rollout was at thewhim of the businesses.” Dunn’s return to the states followed USAchair- man and CEO Joe Weller’s vision for uniting all of theindividual brands into one tightly integrated company. Reflectingon the company’s condition, Dunn said “I don’t think they knew howugly it was. We had nine different general ledgers and twenty-eightpoints of customer entry. We had multiple purchasing systems. Wehad no clue how much volume we were doing with a particular vendorbecause every factory set up their oven vendor masters andpurchased on their own.” Dunn and a group of managers from finance,supply chain, distribution, and purchasing formed a key stakeholderteam to study what Nestlé did right and what could be improvedupon. They were given about two hours to present their findings toJoe Weller and other top executives, but the meeting ended uptaking the whole day. The blueprint from the stakeholder teamincluded SAP as a cornerstone project that would take three to fiveyears to implement. As Dunn points out, “We made it very clear thatthis would be a business process reorganization and that youcouldn’t do it without changing the way you did business. There wasgoing to be pain involved. It was going to be slow process, andthis was not a software project.” Unfortunately, senior managementdid not take the key stakeholder team’s recommendation to heart,nor did they understand the pain it would create. As Dunn said,“They still thought it was just about software.” In October, a teamof fifty senior business managers and ten senior IT managers formeda team to carry out the SAP implementation. The team wasresponsible for defining a set of common processes for everydivision. More specifically, each divisional function, such aspurchasing, manufacturing, inventory, accounting, and sales, wouldhave to give up their old ways and start doing things the newNestlé way. Another team spent eighteen months reviewing each pieceof data in all the divisions in order to come up with a common datadesign across the entire business. For example, vanilla would nowbe coded as 1234 in every division so that the SAP system could becustomized with uniform business processes and data. However, theteam decided against using SAP’s supply-chain module, AdvancedPlanner and Optimizer (APO), because it was recently released andtherefore viewed as too risky. Instead, the team recommended asupply-chain module called Manugistics that was developed by an SAPpartner. By March, the team had a project plan in place whereNestlé would implement five SAP modules: purchasing, financials,sales and distribution, accounts payable and receivable, and theManugistics supply-chain module across every Nestlé division.Implementation began in July with a deadline of approximatelyeighteen months. The deadline was met, but just as many problemswere created as were solved. Before all of the modules were rolledout, there was a great deal employee resistance. It appears thatthe problem was that none of the groups affected by the new systemand processes were represented on the key stakeholder team. Dunnrecalls her near fatal mistake. “We were always surprising [theheads of sales and the divisions] because we would bring somethingup to the executive steering committee that they weren’t privy to.”By the time of the expected rollout, the project had collapsed intochaos. Workers did not understand how to use the new system or thenew processes. The divisional managers were just as confused astheir employees and probably even a bit angrier. Dunn’s help desktook 300 calls a day, and she admits “We were really naive in therespect that these changes had to be managed.” Subsequently, moraledeteriorated and nobody took an interest in doing things a new way.Turnover reached a new high of 77 percent. Supply-chain plannerswere unable and unwilling to abandon their familiar spread- sheetsin favor of the complex Manugistics system. Other technicalproblems began to arise due to the rush to make the project’sdeadline. Integration points between modules were overlooked. Forexample, although the purchasing departments now used common dataconventions and followed the same processes, their systems couldnot integrate with the financial or sales groups. The project wasstopped in June. A co-project man- ager was reassigned and Dunn wasgiven full responsibility. In October, Dunn invited nineteen keystakeholders and business managers to a three-day offsite retreat.While the retreat started off as a gripe session, the memberseventually made the decision that the project would have to bestarted over. The project team had lost sight of the big picture ofhow the various components would fit together. It was decided thatthe project would begin again with defining the businessrequirements before trying to fit the business into a mold that hadto be completed by a predetermined deadline. Perhaps moreimportantly, they concluded that they required support from keydivisional managers and that better communication was needed totell all the employees when changes were taking place, when, why,and how. By the following April, the project team had awell-defined plan to follow. By May, Tom James was hired asdirector of process change and was responsible for acting as aliaison between the project team and the various divisions. Jameswas shocked by the still poor relationships between the projectteam and divisions, so he and Dunn began meeting face to face withthe division managers and started conducting regular surveys betterto understand how the employees were affected by the new systemsand how they were coping with the changes. One difference was Dunnand the project team would act on what they found. For example, arollout of a new co-manufacturing package was delayed six monthsbecause feedback from the users suggested that they would not beprepared to make the process changes in time. Although this projecttook much longer than expected, Dunn is not ashamed of the scheduleoverrun or the numerous dead ends. She believes that slow andsteady wins the race, and that the project has already achieved asignificant return on investment, especially in terms of betterdemand forecasting. “The old process involved a sales guy giving anumber to the demand planner, who says ‘Those guys don’t know whatthe hell they are talking about; I’m going to give them thisnumber.’ The demand planner turned the number to factory, andfactory said demand planner doesn’t know what the hell he’s talkingabout. Then the factory changes that number again.” Now, SAPprovides common databases and processes that allow for demandforecasts to be more accurate. Since all of Nestlé USA is using thesame data, it can forecast down to the distribution center level.Sub- sequently, inventory levels and redistribution expenses can bereduced. The company reports that improvements in the supply chainalone have accounted for a major piece of the $325 million Nestléhas saved by implementing SAP. Dunn reflects that if she had to doit over again, she would focus on changing the business processes,get- ting universal buy-in, and then and only then installing SAP.As she said, “If you try to do it with a system first, you willhave an installation, not an implementation. And there is a bigdifference between installing software and implementing asolution.
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